If you own a credit card, you have probably been asked by the company if you would like to add credit card insurance. Credit card insurance may be beneficial in some cases or an unneeded cost in others, depending on your situation and how much insurance coverage you already have. This is the first point to consider when trying to decide if buying credit insurance is worth it. Continue reading to know more about credit card insurance and decide whether or not you need one…

Credit Card Insurance

Credit Card Insurance

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  • What is credit card insurance?

Just like mortgage protection insurance, credit card insurance is an insurance policy designed to pay a certain amount off your monthly credit card statement in case you lose your job, are unable to work due to disability, or die. It is typically offered to you by insurance providers through the card lender when you apply for a new credit card.

  • What are the types of credit card insurance?

There are four main types of coverage available through credit card insurance:

    • Credit card life insurance:

      Pays off the full balance you owe on your credit card (up to a certain amount) when you die or if you become permanently disabled.

    • Credit card disability insurance:

      Pays the minimum due payment, which is usually 2% to 3% of your balance, for a certain time if you become temporarily disabled. This cover generally only applies to purchases you make before you become disabled, so it is not a free pass to continue racking up debt on your card.

    • Credit card involuntary unemployment insurance

      : Covers the minimum payment (usually 2% to 3% of your balance) if a cardholder is laid off for a specific period of time. Charges incurred after the layoff are excluded, and if you are fired due to serious misconduct, you are not covered.

    • Credit property insurance:

After an item has been purchased, if it is discovered to be damaged or is stolen during shipping, the insurer pays for the credit card purchases.

While these may cover the circumstances that most concern you, you have to read the fine print because there are certain conditions in each type of coverage. These could be anything from the precise cause of death to the type of job that was lost. Remember to do your research and ask questions before you buy any product.

  • Should you get a credit card insurance?

Considering your current and future financial needs is the first step in determining if you might benefit from credit insurance. If you have substantial life and disability insurance policies already, you may have enough insurance coverage in those policies to cover your credit accounts due to your death or disability. Credit insurance may not be as cost-effective and or flexible as traditional life and disability policies. For example, if you have a lot of credit cards, you would have to take out a policy on each of those accounts. With all those monthly policies, you may be able to purchase a traditional life and/or disability policy for less and get more coverage, not to mention after your credit balance is paid with a traditional policy your dependants would receive the remaining amount.

  • Tips to keep in mind before buying a credit card insurance

If you decide that credit card insurance is for you, it is important to keep the following things in mind while buying a policy:

  • Ask about what is excluded in the policy.
  • If you purchase a credit insurance policy that includes all 4 types of credit insurance, namely life, disability, unemployment, and property, make sure that you are not paying for something you do not need. For instance, if you are not employed at the time of getting the unemployment insurance you are paying for coverage that you will not use.
  • Beware of age restrictions, such as in the case of credit life insurance.
  • Ask about waiting periods and pre-existing situations. For example, if you think that you might be laid off in 6 weeks and this is why you take the insurance, keep in mind that the policy may have a waiting period. Time limits and waiting periods may result in a claim being denied.
  • Make sure that you know all the requirements carefully before accepting the policy. If the person you are speaking to can not answer your questions, then ask to have someone who can call you back. Never buy a policy that you don’t understand.

 

Credit card insurance is not mandatory and you should not feel forced to buy it. The coverage of credit insurance is limited because it only helps you with the one credit card. If you’re really worried about covering credit card costs due to disability, death, or job loss, it may be a smarter financial move to consider other options that will let you control where exactly the money gets spent if you need help. Credit card insurance is limited to paying off a limited amount of debt with the creditor in question. Consider learning more about term life insurance, for instance, which would give you more control of your finances.